India’s core sector growth slows to 4% in June

New Delhi: India's core sector output growth, which accounts for about two-fifths of industrial production, fell to 4% in June—its slowest in 20 months—provisional data from the ministry of commerce and industry released on Wednesday showed.

The lower growth can be attributed to a slowdown in activities in sectors like electricity, steel and natural gas, with the output of crude and refinery products contracting during the month.

A year ago, the output of the eight core industries—coal, crude oil, steel, cement, electricity, fertilizers, refinery products, and natural gas—expanded at 8.4%. A month ago, growth was at 6.4%.

The 4% growth in June since the 0.7% growth reported in October 2022, when the economy was emerging out of the pandemic.

The provisional data could be revised in the coming month.

Industry performance

The latest core sector data showed that only three—coal, fertilizers, and cement—of the eight core industries reported a sequential rise in production, while output in crude oil, and refinery products contracted during June.

During June, coal production grew by 14.8% compared with 10.2% growth in May, fertilizer grew by 2.4% compared with 1.7% contraction in the previous month, while cement output grew 1.9% against a 0.6% contraction in May.

Meanwhile, electricity output expanded by 7.7% in June, against 13.7% in the previous month, steel grew 2.7%, as against 6.8% growth in May and natural gas reported 3.3% growth in June versus 7.5% in the previous month.   

Output growth in crude oil and refinery products contracted to 2.6% and 1.5%, respectively, in June. Crude oil output contracted 1.1% in May while refinery products production grew by 0.5% in May. 

The output in refinery products accounts for over 28% of the index of the eight core industries.

Also Read: India’s core sector growth slows to 6.3% in May, as refinery, steel output ease

Expert Take

The decline in the core sector growth can be possibly attributed to lower spending on Government Capex before the general elections (held in April-June 2024) and the slowdown in construction activity which has led to a temporary slack in demand for steel and cement, said Suman Chowdhury, Chief Economist and Head – Research, Acuité Ratings & Research.

"The core segments that continued to show robust output growth are coal and electricity, given higher power demand in the backdrop of a delayed monsoon and heatwave conditions in some parts of the country," he added.

Incidentally, India’s manufacturing activities had slipped to a three-month low in May, before recovering during June, supported by an increase in new orders, output, and a record upturn in employment, according to the HSBC India Manufacturing Purchasing Managers Index (PMI) released early July.

Also Read: Positive output in natural gas, electricity and steel drives India’s core sector growth to 6.2% in April

The HSBC India Manufacturing PMI, compiled by S&P Global, stood at 58.3 in June, 57.5 in May, and 58.8 in April.

Experts expect the additional tax devolution instalment to the states in June 2024 to lead to a pickup in states' Capex, while Centre's FY25 budget proposals on Capex could provide impetus to the construction and infrastructure sectors.

"However, there is an unfavourable base effect which will be at play in the next four months and is expected to weigh down on core sector growth," said rating agency India Ratings and Research in a comment on the latest core sector data.

"The average y-o-y (year-on-year) growth during July-October 2023 was 11%. Ind-Ra expects the core sector average growth to hover at around 5% y-o-y in the next three to four months," it added.